UAE Struggling to Build World Class Defense Industry?

It was undoubtedly a busy and productive International Defence Exhibition and Conference (IDEX) 2017 for the United Arab Emirates (UAE). At the five-day biennial global arms trade exhibition held in Abu Dhabi in February, the hosts signed 82 contracts worth an estimated $5 billion. A large number were awarded to domestic manufacturers in the UAE, where the indigenous defense industry is growing. Although “buying local” is hardly unique to the UAE, prioritizing domestic manufacturers nevertheless provides some interesting insights into the current state and possible trajectory of its defense industry.

By investing in the UAE’s indigenous defense sector, Abu Dhabi seeks to advance the country’s interests while creating lucrative commercial opportunities outside of the oil and gas sectors for UAE nationals. Like other members of the Gulf Cooperation Council (GCC), the UAE is determined to gain greater autonomy from Western powers and become a formidable military power in the Middle East. Until 2011, the UAE’s military mostly limited its activities to the GCC, yet since then the Arab Gulf state has waged operations in Iraq, Libya, Syria, and Yemen, underscoring the extent to which Abu Dhabi has militarized its foreign policy in response to the region’s destabilization. Not only do Abu Dhabi’s bold foreign policy initiatives explain the UAE’s growing faith in its own defense sector, but so do the country’s determination to diversify its economy beyond oil and gas. To create a “competitive knowledge economy” the UAE has invested in major initiatives such as the National Innovation Strategy, UAE Vision 2021, and Abu Dhabi Vision 2030.

The establishment of the Emirates Defense Industries Company (EDIC) in 2014 was a milestone in the UAE’s efforts to “localize” its defense expenditures, a pillar of the country’s economic diversification agenda. EDIC came out of the integration and consolidation of defense industry companies previously under the umbrellas of Mubadala Development Company, Tawazun Holding, and Emirates Advanced Investments Group.

IDEX 2017 therefore provided the ideal opportunity for EDIC and its subsidiaries to demonstrate their ability to meet the UAE’s defense requirements. None more so than military vehicles. Towards the end of 2016, the UAE Armed Forces confirmed that NIMR Automotive’s JAIS multi-purpose and AJBAN Special Operations Vehicles were now in service. Senior figures were also keen to emphasize that these “world class” platforms are produced by “local talent” at the company’s high-tech manufacturing facility in Abu Dhabi.

Therefore, it’s hardly surprising that the UAE used IDEX 2017 to show how much faith it has in domestic manufacturers. Indeed, the facts and figures speak for themselves: a $600 million deal for 400 NIMR-produced 8×8 fighting vehicles on the first day, a contract for 1,765 infantry fighting and artillery support platforms on the last. Contract awards were complemented by confident public statements by senior executives. According to Fahad Al Mhieri, Director, Business Development, EDIC no longer looks to expand via the well-established route of joint ventures with other companies. It’s also starting to seek out opportunities within the GCC and further afield.

Such bold statements of intent resonate with the UAE Armed Forces’ growing reputation, having earned the accolade of  the “most powerful army you’ve never heard of” following their contribution to operations in Libya and elsewhere since the 2011 uprisings erupted. The UAE’s contribution to the Saudi-led military campaign in Yemen is also contributing to this reputation. However, the UAE still has some way to go before it becomes a “manufacturer of choice” for local and regional customers.

Limited Options

A brief inspection of arms transfer registers confirms the UAE’s relatively limited exposure to the global defense marketplace. For instance, previous customers for its NIMR and Panthera T6 Armored Personnel Carriers include Algeria, Turkmenistan, and several other “smaller” military powers. To further compound matters, the tactical military vehicle market is dominated by established manufacturers capable of offering combat proven platforms with an economy of scale on price. So, before the UAE even contemplates a public relations campaign to emphasize the “world class” credentials of its defense manufacturers it must tackle some formidable obstacles.

The most obvious concerns demographics. With migrants representing over 80 percent of the UAE’s population, the country has a limited indigenous talent pool from which to nurture the skills required for a “competitive knowledge economy.” In addition, local defense manufacturers must compete with other non-oil sectors such as tourism and finance to attract the brightest and best new talent to advance the UAE’s development agenda for its homegrown defense industry.

The lack of transparency surrounding the quality and performance of some of its defense products is another challenge. It’s easy for senior industry figures to play up that the harshest environments on the planet are testing the UAE’s military vehicles. Additionally, although NIMR seemed comfortable displaying a battle-damaged JAIS Mine-Resistant Ambush Projected vehicle at IDEX 2017, more is required to overcome competition from other tried-and-tested platforms.

It also remains to be seen whether the UAE has developed the ability to compete with those states well-versed in the art of Government-to-Government and Foreign Military Sales (FMS). Heavily prioritized by the U.S., FMS is also a preferred method of procurement for purchasers around the world. In comparison to Direct Commercial Sales, it has a reputation for being a relatively stress-free approach that keeps prices reasonable and red-tape to a minimum. FMS also helps to establish solid lines of credit and finance, strengthen existing diplomatic relations, and safeguard well-established footholds in defense markets.

However, the comparatively slow pace of FMS has annoyed GCC states in the past. These originally required a sign-off by the U.S. Department of Defense, Department of State, and Congress, a frustrating process given the precarious Middle Eastern security crises. To overcome this, Washington now relies on the Department of Commerce to speed up its FMS transactions. Doing so not only helps put its FMS house in order, it also strengthens the U.S.’ position as a manufacturer of choice for governments around the world.

Looking Ahead

Put simply, if the UAE wants to compete on a level playing field, the country must catch up with the leading defense manufacturers and their government sponsors. But the UAE is not daunted by the challenging task at hand. Alongside government policies aimed at building skills and improving manufacturing capabilities, the UAE is also forging international partnerships with fellow small defense manufacturers. At IDEX 2017, the Tawazun Economic Council signed a Memorandum of Understanding with Belarus to facilitate the exchange of research, development, and production expertise. This was accompanied by NIMR’s formation of a joint venture with Czech firm VOP CZ to produce and sell combat vehicles throughout Central and Eastern Europe.

These partnerships build upon Mubadala’s successful penetration of commercial aviation markets. At Farnborough International Air Show 2016, the investment and development company STRATA Manufacturing signed $1 billion worth of contracts to build components for Airbus’ small and mid-sized aircraft. Elsewhere, Mubadala and Rolls Royce have confirmed plans to develop a facility to carry out maintenance on the Trent XWB engine. Both projects will be based at the Nibras Al Ain Aerospace Park.

Such initiatives underline the UAE’s determination to develop the type of indigenous engineering and technical know-how that will enable it to consistently offer defense products and solutions beyond traditional and local markets. They also confirm that the Emirates has come a lot further in its efforts to build a domestic defense industry than its GCC counterparts.

In this respect, Saudi Arabia is likely to watch the progress made by UAE manufacturers with great interest. One of the key pledges made in Saudi Vision 2030 is to reduce the percentage of defense sales sourced in foreign countries from 98 to 50 percent by 2030. Indeed, there are plenty of lessons which Riyadh can already learn from the UAE’s head-start.

The first is that domestic demand and consumption will dominate the formative years of indigenous industrial development. That’s not a bad thing, given the security challenges facing GCC states and concerns over the efficacy of FMS. Indeed, the more the UAE can demonstrate the capabilities of its products, the more marketable these become to “smaller” defense powers. Making the most of these opportunities rests on the building of specific and achievable development strategies and the formation of a coherent defense manufacturing base. The UAE isn’t idling, it’s just getting started.

Dr. Theodore Karasik is a non-resident senior fellow at the Lexington Institute and a senior advisor at Gulf State Analytics (@GulfStateAnalyt), a Washington, DC-based geopolitical risk consultancy. Adam Dempsey is an advisor at Gulf State Analytics.